Since Christmas, first-time buyers and savvy buy-to-let landlords have been more active than expected in the Newbury property market.
Rents in the Newbury area have soared in the last two years, with the average rent increasing to £1,156 a month, an increase of 17.8%.
Because of these growing rents, it has made homeownership more cost-effective for younger buyers and more lucrative for landlords. On the back of this, house prices are rising in Newbury.
Before I move on to what the future holds, as a good comparison, currently Newbury houses are selling for an average of £365/sq. ft.
Of course, there are several issues which could upset the ‘apple cart’.
One is the recent Bank of England base rate rise.
The recent decision by the Bank of England (BoE) to raise the Base Rate by 0.25% has only led to a negligible increase of 0.04% in average rates for two-year and five-year mortgages.
This rise in BoE interest rates is primarily attributed to their forecast that inflation will not decrease as quickly as initially anticipated.
Consequently, the underlying costs of lenders’ fixed-rate deals, known as swap rates, have risen slightly, resulting in an adjustment of lenders’ mortgage rates.
To provide some perspective, current average mortgage rates (late May) are like those observed at the beginning of April, with some rate fluctuations in those seven weeks.
I also have concerns about the cost of living persisting among many households, which may continue to impact sentiment and activity in the property market.
Additionally, the gradual impact of higher interest rates on those existing homeowners should not be underestimated. There are millions of homeowners whose existing sub 1% to 1.5% interest fixed mortgages are set to end in the coming three years.
However, some of those Newbury homeowners would rather sell up and trade down market to reduce their mortgage outgoings than cut their household budgets regarding entertainment, holidays, etc.
So that is what could go wrong in the Newbury property market; what about the potential good news?
Contrary to expectations back in late 2022, I stated a few weeks ago, Newbury first-time buyers in 2023 have been more active in the housing market despite prevailing uncertainty.
I attribute this trend to the rising rental costs, which have made homeownership in Newbury comparatively more cost-effective.
This, in turn, has attracted new Newbury landlords into the market to invest. I am aware some highly geared (i.e. they have high percentage mortgages on their buy-to-let properties) landlords have been battered with the section 24 taxation changes from a few years ago.
Yet, there are lots of new landlords coming into the buy-to-let market. They had their fingers burned on crypto and the stock market and are now looking for another investment vehicle for their savings.
Buy-to-let is an excellent hedge against inflation.
The British housing market, which experienced a surge during the pandemic due to the demand for more space, has yet to experience the anticipated decline that some commentators predicted last year. The resilience of the UK economy, the strength of the labour market and the expected decrease in inflation throughout the remainder of the year are all factors that only add strength to the Newbury property market.
